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Inside CVC’s tortuous decision to go public

As Iran launched an attack on Israel on Saturday, executives at one of Europe’s largest private equity groups felt a sense of déjà vu.

Russia’s invasion of Ukraine and the Israel-Hamas war had prompted CVC Capital Partners to call off its previous two attempts to list on Amsterdam’s stock exchange, the firm’s biggest gambit since spinning out of Citibank’s London office three decades ago.

But this time, they pressed ahead. By Monday morning, as markets shrugged off the prospect of an escalation of conflict in the Middle East, the 17 men and one woman who make up CVC’s management board had reached a consensus, reasoning that after two years of on and off talks, there would never be a perfect time to go public.

“Everybody is on board now, but it took many years for people to come around”, one insider said.

CVC, which made its name buying stakes in companies including the Six Nations rugby tournament, Formula One, UK retailer Debenhams and the software provider behind the British Covid-19 vaccine rollout, is seeking to raise at least €1.25bn in an initial public offering that it hopes will cement its place at the top table of the buyout industry.

The stop-start process has tested CVC’s dealmakers as they watched some listed peers thrive, while raising questions about whether it is the right move for a firm that has succeeded in private hands for 30 years.

The decision has also accelerated the departures of two of its most powerful figures, co-founders Donald Mackenzie and Steve Koltes, who decided that while the stock market might be the right place for CVC, it is not the right place for them. 

Still, the firm is not completely opening itself up to public markets, and 70 per cent of the profits from successful deals will remain in private hands, mirroring the sort of structure adopted by rivals such as EQT. The deal teams will receive 40 per cent of the profits, an attempt to ensure the performance-focused culture remains in place.

Bernie Ecclestone, left, the former head of Formula One Group, with CVC co-founder Donald Mackenzie, at the Austrian Grand Prix in 2015 © Charles Coates/Getty Images

Meanwhile, 30 per cent will go to a private company that will maintain a separate board and where its departed co-founders will continue to have a role, some of the people said. The separate board will not play a role in the firm’s governance after listing.

The Financial Times has spoken to more than a dozen current and former staff, advisers, investors and rivals, many of whom asked not to be named, about the long and difficult path to CVC’s decision to list.

Objections

The appearance of PE firms on public markets took off in the years after the 2008 financial crisis when US giants Blackstone, KKR, Apollo Global Management, Ares and Carlyle went public. 

Their share prices have surged over the past half-decade, particularly as they have switched from partnership to corporation status, a move that obliges them to pay more tax but makes it easier for mutual funds and index trackers to own their shares.

But some of CVC’s most prominent dealmakers have in the past been reluctant to follow suit, including Madrid-based Javier de Jaime Guijarro, New York-based Chris Stadler, Frankfurt-based Alex Dibelius and Koltes, according to two people involved in the talks. 

Dibelius, who joined from Goldman Sachs in 2015, had already been through the rigmarole of taking a secretive company public and warned colleagues about the effect it had on his former employer, having been a partner at the bank when it listed in 1999, according to one person who knows him.

Some investors and board members feared listing might bog down the firm’s freewheeling dealmakers in paperwork and end or dilute its deal-focused, “eat what you kill” culture, in which profitable buyouts are prized above all and even 20-something executives involved in them can receive windfalls worth millions of pounds.

There were also concerns that, at a firm where decisions have for years been taken by consent among a wider group of top dealmakers, the creation of a public company with a chief executive and chief financial officer could concentrate too much power in the hands of two people. 

After PE firms list, they often become asset gatherers, focused less on individual deals and more on raising ever-larger and more varied pools of money to invest, since shareholders value the steady stream of management fees this generates.

What drives listed buyout groups “is AUM [assets under management] — it’s not entrepreneurial”, one of the people said. Opponents argued that they “didn’t want to have a big, public company way of thinking about stuff”.

Another difficult part of deciding to list has been the prospect of putting the firm and its dealmakers in the public eye.

The fortunes accumulated by some CVC executives are a striking example of PE’s enrichment of financiers over the past few decades, far outstripping the sums paid to some of the bankers who faced public outrage over their pay in the wake of the 2008 crisis.

Buyout executives — who benefit from low tax on their often multi-million-pound “carried interest” payouts — have largely flown under the radar. 

Co-founder Mackenzie, a Scottish chartered accountant based in the low-tax offshore centre of Jersey, hosts friends and family on a 52-metre luxury superyacht, Grace, according to multiple people with knowledge of the matter.

His fellow co-founders Rolly van Rappard and Koltes own a 56-metre superyacht, Blue II. Website SuperYacht Fan says the boat is worth an estimated $50mn.

Irish rugby player Josh van der Flier in action against England in the Six Nations tournament © Paul Faith/AFP/Getty Images

For Mackenzie, the listing has forced a difficult decision. He does not want to sit on the board of a publicly listed CVC, according to people who know him. “He wouldn’t be out there making speeches and stuff, it’s not his thing,” one added. 

He was not named as a central figure on CVC’s last two buyout funds, people familiar with the matter said, a sign of his increasing distance from the company he founded and built. However, he has remained involved with a business that has consumed most of his professional life, including occasionally working with portfolio companies or on new deals, one person said.

CVC announced in February that he was bowing out. But behind the scenes Mackenzie, who like other co-founders will remain a big shareholder, has been discussing ways he might stay involved.

He will continue sitting on the board of the Luxembourg private company, according to three people with knowledge of the discussions, one of whom said it would receive about a third of the profits from successful deals.

Koltes, who announced his departure in early 2022 just as the listing plans were firming up, could also be involved, according to two of the people. Mackenzie and Koltes would continue providing informal advice to the firm on investment decisions and strategy, three of the people said. 

“You can’t have all these meddling forces,” one person said, adding that they would not have any governance roles once the company they founded went public.  

Van Rappard, who is Dutch, is the only one of the firm’s co-founders set to have a formal role — as chair — after it lists in Amsterdam. He is a formidable entrepreneur, according to one person who has known him for decades, but does not fit the “blue-chip and pinstripe” mould of a public company chair.

CVC, Mackenzie, Koltes, van Rappard, de Jaime Guijarro, Stadler and Dibelius declined to comment.

Urgency 

CVC’s conversations about listing became more urgent after its closest European competitor, EQT, listed in Stockholm in 2019. That enabled EQT chief executive Christian Sinding and founder Conni Jonsson to each sell shares worth more than $100mn in 2021. 

EQT has boosted its fee-earning assets to about €130bn from about €40bn at the time of its listing. “It was difficult”, said one person with knowledge of the talks at CVC. “This was a major European challenger [listing] for the first time.” 

TPG, Bridgepoint, Antin Infrastructure Partners and Blue Owl followed EQT on to public markets in a flurry of listings as rock-bottom interest rates fuelled a private equity boom. That prompted a “lot of discussion and analysis”, which caused opponents of a CVC listing to change their mind one-by-one, people involved said.

One of the driving forces was a fear that CVC would become a second-tier firm if it was unable to keep up with rivals that used the proceeds from successful listings to grow fast. The PE industry is increasingly splitting into bigger listed groups that are attracting a large share of investor money and smaller, more specialist unlisted ones.

The firm’s decision makers hope the visibility of being a public company will help it attract talent and raise funds from wealthy individuals as well as institutions such as pension plans and sovereign wealth funds, according to some of the people involved in the talks.

Another draw was that EQT and Bridgepoint had listed using a model in which top executives did not disclose how much money they made in carried interest. In the US, listed PE firms such as Blackstone and KKR have to be more transparent about the figures.

By 2021, going public increasingly seemed inevitable, a person involved in the CVC discussions said.

Listing will eventually provide a way for founders to cash out and transfer ownership to younger employees. It will also allow existing shareholders including the Hong Kong Monetary Authority, Kuwait Investment Authority, and Singapore’s GIC to reduce their stakes.

Javier de Jaime Guijarro. He is among CVC’s most prominent dealmakers who in the past have been reluctant to take the firm public © Angel Navarrete/Bloomberg

By the start of 2022, plans were in place. The firm had agreed on Amsterdam’s Euronext as its listing venue — a blow to London, where its roots lie.

Then Russia launched its full-scale invasion of Ukraine. In the turmoil that followed, inflation and rate rises roiled markets, and listings in Europe almost ground to a halt. CVC told investors in May that it was pushing back the plan.

As it hesitated, a long stretch of near-perfect conditions for the PE industry came to an end, as central banks raised rates and dealmaking tumbled.

But by the summer of 2023, CVC had defied an industry-wide fundraising slowdown by raising €26bn for the largest buyout fund in history. So it stepped up its listing preparations until a series of meetings in late October and early November at which sceptics won out.

“It’s a terrible backdrop”, one said at the time, adding that CVC did not want observers to ask “why the hell did they do that?” if the listing flopped. Conscious of the group’s reputation as savvy investors, they took the decision using an “abundance of caution”, another person said.

As CVC has waited for its moment, it has sought to become a more attractive candidate for public markets, adding investor relations and communications staff and raising the new fund.

It has also expanded into new areas, becoming more like the sprawling, diversified listed firms whose ranks it plans to join. CVC in September bought Dutch infrastructure fund DIF Capital Partners, having acquired Glendower Capital, which invests in deals where PE firms sell companies to themselves, in 2021.

But preparing to list has consumed time and energy, and some dealmakers have been getting frustrated. “There’s so much work” that goes into preparing for an IPO, one person involved in the process said. “It ties up the company, it’s a resource issue. We just have to get it done.”

By last week, after a series of positive meetings with investors, CVC was finally ready to announce its intention to list, but geopolitical chaos again threw the plans into doubt.

CVC executives followed events in the Middle East closely over the weekend, according to people with knowledge of the matter, deciding to see how markets would react before announcing their plan on Monday.

“We have looked at going public on a couple of previous occasions and we have erred on the side of caution,” Rob Lucas, a CVC managing partner who will become chief executive of the listed business, told the FT. “The engagement we have had over recent weeks has been very very strong, that’s what has given us the confidence to move forward now.”

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